Unintended Consequences Of A $15 Per Hour Minimum Wage!

By | April 10, 2016

minimum wage hike

A government mandated jump in the minimum wage to $15 per hour sounds like a boon for low-wage workers!

But the reality is that it’s likely there will be unintended negative consequences resulting from a government-mandated regulation that imposes a dramatic increase to the cost structure of businesses.

First, consider that the politicians who impose these regulations often have no business experience to speak of and only understand the following…That as a result of their actions they will be pleasing members of their constituency whose votes they seek.

And it’s these votes that will result in said politician remaining in elected office.

Responsibility For A Businesses Bottom-Line

When a government entity’s income is less than its expenses resulting in a loss that’s also known as a deficit, that government will typically raise the level of revenue by increasing the taxes paid by its citizens.

These taxes can be a straight-out increase such as on property or disguised in new fees for items such as recording documents in a real estate transaction. But, the bottom line is that a tax is a tax is a tax!

Businesses don’t necessarily have that same luxury!

So all of that said what might the unintended consequences of a $15 per hour minimum wage be?

Ironically the higher expenses for businesses could mean the loss of jobs for the very people that these politicians were trying to ‘help’ in the first place and/or higher prices at the retail level that would impact people with the least ability to afford them yet who will be required to pay.

Is this what a higher minimum wage is supposed to accomplish?

From a Forbes article titled, ‘If California’s $15 Minimum Wage Isn’t Going To Reduce Poverty Then Why Bother To Do It?‘…

…We do indeed know that there are going to be price rises as a result of this. But the distribution of them will not be equal at all. For low-wage workers are the largest consumers of goods and services produced by low wage workers. Think it through: Walmart’s target demographic isn’t Wall Street financiers after all. Any price rise Walmart has to impose to pay for higher wages will impact upon Walmart’s customers: who do indeed tend to be poorer than the national average. And as I say, studies have shown that while the income effect of a minimum wage rise is as Neumark states above, skewed towards richer families, the distribution of the price rises runs the other way. It’s skewed toward larger price rises in the goods and services that poor people buy.

It is therefore possible that this minimum wage rise will increase poverty overall: increase the prices paid by those poor by more than their share of the income increase. I think it’s unlikely that matters will be that extreme but it is at least possible. But the larger point still stands. As a tool to beat poverty a minimum wage rises stinks. So, let’s not do it, let’s go and do the other two things that we know do raise poor peoples’ incomes. Adopt a policy of full employment, that being something that drives up wages, and increase the EITC* which we know very well is the most efficient method of reducing working poverty…

*EITC: Earned Income Tax Credit

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com.

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